Enrico Perotti Javier Suarez

Insurance against Systemic Crises

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Abstract

Most financial system reform proposals rely on better managed, anti-cyclical capital requirements, or some sort of insurance. This article argues that mandatory liquidity insurance would be more effective. The insurance premiums - linked to maturity mismatch and term structure - would essentially be pre-payment for the cost of future financial crises and held in an Emergency Liquidity Insurance Fund.

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